Institute of management education

Sahibabad

Paper code 401 (CPSM)

Time allowed 3 hrs, max marks -- 50

Question -: 1 (15 marks)

Case study

Rural Market Maven

LG Electronics India is an unusual company. How unusual? Well, enough to have motivational
posters-Leader's Marketing, Premium Marketing, Fast Innovation, Fast Communication. Great Culture,
Great People. Lead the Market, Meet the Market, Create the Market they scream-in the washroom (and
in other places) within its Noida facility.

Enough to insist that managers report for duty at 8.30 am, well before everyone else.

And enough to derive the bulk of its growth from the rural market (honestly, how many companies you
know can claim that?).

India's rural market-estimated at 128 million households-is the Holy Grail for most marketers. Few,
however, embark on the path LG did in 2002. The urban market for its products was growing at a
sleepy 6 per cent, and LG decided to look to the semi-urban and rural markets for that elusive growth.

The Korean consumer products major (with Rs 4,500 crore in revenues, it merits the appellation)
wasn't the first company to venture into the great Indian hinterland that accounts, by some estimates,
for 41 per cent of India's middle class, and 58 per cent of the corresponding purchasing power. The
way it chose to do so was unique: central and remote area offices (CAOs and RAOs).

LG'S RURAL MARKET FORAY

Revenues Rural/Semi- Number of towns
Year
(Rs Crore) Uurban: Urban split (presence)
1999 1,056 N.A. 1,496
2000 1,903 30:70 1,995
2001 2,216 35:65 2,400
2002 3,315 40:60 3,078
2003 4,500 70:30 3,823
N.A.: Not available

Place: LG was among the first to institutionalise the concept of the remote area office (RAO). Today
the company has 65 RAOs, 60 central area offices (CAOs), and 40 branch offices
Management: RAOs and CAOs aren't just sales offices; they are full-fledged profit centres with
elaborate decision-making powers
Connectivity: An on-line back-end facilitates the monitoring of RAOs and CAOs on a daily basis,

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enabling micro-marketing
Product: LG follows a 'Different Models, Different Channel' strategy. Products are customised in
terms of pricing and features to suit local requirements
Promotion: The branches have complete control over tactical advertising-from choice of medium to
creative execution

Those aren't mere abbreviations. A CAO is how LG refers to an office in a Class B town; and RAO,
how it refers to one in a Class C town.
Today, LG boasts 60 of the former and 65 of the latter and rather than merely create offices, it has
fashioned profit-centres that are empowered enough to deserve their own independent budgets for
logistics, after-sales service, accounts, even sales and marketing. Managing Director K.R. Kim
believes "this unique and aggressive model" will help LG stay ahead of the competition. In terms of
the number of towns and cities it reaches, the company, arguably, is ahead of the pack: it reaches 3,823
towns.

That's not something the competition is in awe of. R. Zutshi, Director (Sales), Samsung India, LG's
arch rival (its revenues in 2003 were Rs 3,708 crore) isn't in favour of "wild expansion".The company
has been content to work its two-year-old strategy of hosting roadshows in small towns to boost sales.
Zutshi swears by this strategy's efficacy in increasing penetration and marketshare. Still, there's no
denying the fact that the CAO (central area office) and RAO (remot area office) model has worked for
LG. Its marketshare in the washing machine, microwave oven, colour television, and air conditioner
markets is 25.5 per cent, 36 per cent, 19.6 per cent, and 34 per cent, respectively. Samsung's is 20,
30.5, 15.1, and 14. This year, 2004, LG hopes to register revenues of Rs 7,000 crore. The rural market,
explains Anil Arora, Head (Marketing), LG, will boost volumes, while the urban market will continue
to grow in terms of value.

Information Edge

Information is the ingredient that provides LG's business model with an edge: feedback from CAOs
and RAOs is looped back into the company's product development (or product adaptation) process.
Thus, LG's air-conditioner with plasma technology can't be found in small-town markets.

Today, LG's entry-level colour television retails for Rs 5,050, air-conditioner for Rs 19,990, and frost-
free refrigerator for Rs 12,500. Each of these offerings has been specially crafted for non-urban
markets. For instance, LG discovered that it could make 1.2 tonne air-conditioners for Rs 2,000 less
than the 1.5 tonne ones.

Then, there's the advertising angle. At LG, most tactical advertising is local. Catalogues that once used
to be printed by HQ are now printed by four vendors across the four zones; the branch offices place
orders directly with them. The branch offices also decide on hoardings, the use of mobile vans, and
other promotion-related issues. And 23 call centres back 206 service centres manned by 1,500
engineers across 141 cities.

The LG experience shows that it is possible for a company to position itself as a premium-player in the
urban market and still make inroads into the rural one, although some competitors are quick to allege
that LG's reach-intensive strategy does not have room for the creation of assets. For the record, LG
claims to have invested Rs 500 crore in its Greater Noida facility and is investing an equal amount in a
new one in Pune

Videocon may claim to be India's first real rural-market focused consumer durable company-"We
started from Ahmednagar in Maharashtra and then moved on to the metros, a fact that worked to our
advantage," gloats Venugopal Dhoot, Chairman, Videocon-but it is LG that has given the term rural
market play an entirely different meaning. "LG thinks, acts and reacts one step ahead (of the
competition) and that should never stop," says Kim. Well, there are no full stops in rural India

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Case Questions
1. Identify and analyze the factors that have contributed to the competitive success of LG in
electronics.
2. Using Porter’s five force model Discuss, LG though a success in consumer electronics, has
not been able to establish its brands that well in FMCG consumer products.

Question -: 2 (7.5 marks)

• Write a descriptive note on Benchmarking and its relevance in strategic management of an

organization.
or
• Describe in detail with a suitable example the concept and application of “core
competence” of an organization

Question -: 3 (7.5 marks)

• Distinguish between strategic decisions, administrative decisions and operational decisions.

Explain how strategic planning accomplishes its purpose by providing a firm with an
objective-strategy design.
or
• A strategic planner must make integral appraisal of a firm from time to time. Explain how
SWOT analysis can help a firm to achieve competitive advantage.

Question -: 4 (5 marks)
• Economic and environmental changes have created new demands on firms”. Discuss this
statement in the light of the need and importance of strategic planning for a firm in the current
and emerging business environment

Question -: 5 (15 marks)

Write short notes on the following

1. steps in creating a vision
2. value chain
3. vertical integration
4. horizontal integration
5. relevance of GDP in industry analysis
6. functional synergy
7. strategic group
8. strategic intent
9. difference between merger and acquisition
10. strategic business unit